Stock Portfolio Updates: Cash & Short Positions Fend Off Market Decline
By: Jeffrey Hirsch & Christopher Mistal
May 19, 2016
U. S. equities are at a critical juncture. As you are all most likely aware May is the first month of the Worst Six Months – we are not going to use that over played market saying. You may also be aware that we issued our Best Six Months Seasonal MACD Sell Signal on April 5, 2016. Since that Sell Signal the market proceeded to make a brief high 4/20. Then things began to deteriorate.
NASDAQ is on pace for its fifth straight weekly loss and DJIA and S&P 500 are on pace for four losses in a row. Weekly advancing issues on the NYSE have been falling the four weeks while declining issues have been on the rise and greater than advancers the past 2 weeks. New 52-week highs have expanded the past three weeks, but so have new lows, albeit not by much. 
Market tops or high-water marks are often associated with a large number of new highs. If you think about it, it’s logical. New highs on the NYSE came in at 445 last week; this was the largest number since February 2015. New lows, which were 1451 on January 22, 2016, are just starting to pick up, hitting 80 last week, the highest since the end of February 2016. New lows tend to max out at low points.
The weekly CBOE equity-only put/call ratio, a fear gauge we prefer because it measures where traders are putting their money, hit 0.84 last week, the highest level since January 15, 2016. Traders are buying puts as bearish factors are mounting. Negative seasonality, hawkish Fedspeak, a tumultuous presidential campaign, global economic woes and tepid growth here in The States adds up to market trouble.
[SP500 Daily Bar Chart]
This chart of the S&P 500 illustrates a few ominous chart patterns. The uptrend line since the February low appears to have been broken. A Head-And-Shoulders topping pattern is about to break through its neckline right at monthly pivot point support (green dotted line) and a falling 200-day moving average (red line). And once again the market may have topped out in a notorious Golden Cross, which we have shown to be of little value as the bullish indicator it is advertised to be. 
In the lower panes, the cumulative Advance-Decline line is flat-lining and drifting lower. Relative strength has been heading bearishly lower as the market made the recent highs. Finally, the slower MACD Sell Indicator has been heading down since late-March and our April 5 Sell Signal. A further breakdown here or sometime in the next few weeks could start us on a path toward lower support in the S&P 500 1800-1900 range.
Portfolio Updates
Over the past four weeks since last update, S&P 500 has slipped 2.2% lower and Russell 2000 declined 3.2% as of yesterday’s close. As was anticipated in the last update, the market did fail at major resistance right around its all-time highs last month and the Almanac Investor Stock Portfolio’s sizable cash position has buffered it from recent weakness. The addition of last month’s Five Select Seasonal Shorts also boosted the portfolio. Collectively, the entire stock portfolio gained 0.5% over the same four-week time period. Mid-caps performed best adding 1.6%. Large-caps were worst, off 1.4%.
The basket of Select Seasonal Shorts on April 21 has thus far proven timely. Four of the five new short trade ideas were quickly added to the portfolio in April. Virtus Investments (VRTS) was the last to reach one of its trigger prices on May 10. As of yesterday’s close this basket of shorts had an average gain of 10.1%. Short trades are identified in the portfolio with an “(S)” after the company name. For further ease in locating they are also shaded light grey. VRTS, LNN, KNX, MEOH and IVZ are on Hold. Please note associated, updated stop losses in the table below.
Global Brass and Copper Holdings (BRSS) remains a solid performer in the Small-cap portfolio. Net sales were softer in Q1 of this year compared to the same quarter a year ago however, costs also shrunk substantially resulting in an improvement in earnings. Management also reaffirmed its full-year 2016 outlook. BRSS is on Hold. 
Per last month’s advice, Stein Mart Inc (SMRT) was sold and closed out of the portfolio using its closing price on April 20 for a minor gain of 6.1%. This sale proved timely as shares soon thereafter quickly began to tumble and were as low as $5.61 yesterday before bouncing today.
In the Mid-cap portfolio, existing holding in Scotts Miracle-Gro (SMG) and Sunoco (SUN) stumbled and now trade around their respective buy prices. SMG reported respectable earnings with solid revenue growth and expanding margins. SUN earnings were so-so. Revenues were down, but margins were up. SMG and SUN are on Hold.
A review of our Large-cap positions reveals the bulk of the losses there was due to the addition of Starbucks (SBUX) and weakness in Centene (CNC) and Hanesbrands (HBI). Much of the weakness appears to be the result of broader weakness and not any specific problem with the actual companies. HBI undoubtedly got dragged down by the recent retail sector rout. CNC is one of the few insurers that are actually profiting from its involvement with the ACA healthcare exchanges. SBUX could be taking a modest hit because it is borrowing $500 million to promote sustainable practices. SBUX, CNC and HBI are all on Hold.
Please note stop losses for several positions have also been increased. All other positions not previously mentioned are on Hold.
[Almanac Investor Stock Portfolio – May 18, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in CNC, CVS, HBI, SMG and TSCO.